Formation of provisions

Learn how provisions according to OR 960e are essential for hedging against uncertain obligations and impending losses.

2013

original publication on December 17, 2012; updated on February 28, 2013

‍In OR 960e, the formation of provisions is required to cover "uncertain obligations and impending losses from pending transactions". They represent liabilities which are indeterminate at the balance sheet date in terms of their amount or the timing of occurrence.

They are related to transitory liabilities because both serve time adjustments. However, uncertainties regarding amount and timing exist with them, while transitory liabilities are usually determinable. Furthermore, provisions are often medium to long-term. Transitories, on the other hand, are always short-term. In everyday business, there are numerous events for which provisions must be formed. Provisions for...

... process risks of legal proceedings
... pending transactions
... uncertain liabilities
... omitted expenditures
... impending losses

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